Concept explainers
(a)
Straight-line
To Record: the
(a)
Explanation of Solution
Record the journal entries for the accounts related property, plant, and equipment.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
April | 1 | Land | 4,400,000 | ||
Cash | 1,100,000 | ||||
Notes Payable | 3,300,000 | ||||
(To record the issue of notes and cash paid for land purchase) | |||||
May | 1 | Depreciation Expense (1) | 93,333 | ||
| 93,333 | ||||
(To record the depreciation for the equipment sold ) | |||||
May | 1 | Cash | 300,000 | ||
Accumulated Depreciation-Equipment (2) | 2,333,333 | ||||
Loss on Disposal of Plant Assets (3) | 166,667 | ||||
Equipment | 2,800,000 | ||||
(To record the sale of equipment) | |||||
June | 1 | Cash | 900,000 | ||
Notes Receivable | 2,700,000 | ||||
Land | 1,400,000 | ||||
Gain on Disposal of Plant Asset(4) | 2,200,000 | ||||
(To record notes received on land sale) | |||||
July | 1 | Equipment | 2,200,000 | ||
Cash | 2,200,000 | ||||
(To record purchase of equipment) | |||||
December | 31 | Depreciation Expense (5) | 100,000 | ||
Accumulated Depreciation-Equipment | 100,000 | ||||
(To record depreciation for equipment retired) | |||||
December | 31 | Accumulated Depreciation-Equipment (6) | 1,000,000 | ||
Equipment | 1,000,000 | ||||
(To record retirement of equipment) |
Table (1)
Working Notes:
Calculate the current year depreciation for equipment sold on May 1, 2017.
Cost of the equipment =$2,800,000
Useful life= 10 years
Number of months used= 4 months (January 1, 2017- April 30, 2017)
Calculate the amount of accumulated depreciation for equipment sold on May 1, 2017.
Cost of the equipment =$2,800,000
Useful life= 10 years
Number of years used= 8 years (January 1, 2009-December 31, 2016)
Number of months used in 2017 = 4 months (January 1, 2017-April 30, 2017)
Calculate the amount of gain / (loss) on disposal of equipment.
Calculate the amount of gain / (loss) on disposal of land.
Calculate the amount of depreciation for equipment that is retired on December 31, 2017.
Cost of the equipment =$1,000,000
Useful life= 10 years
Number of months used in 2017 = 12 months (January 1, 2017-December 31, 2017)
Calculate the amount of accumulated depreciation for equipment retired on December 31, 2017.
Cost of the equipment =$1,000,000
Useful life= 10 years
Number of years used= 10 years (January 1, 2007-December 31, 2017)
Description:
April 1: Issued notes and cash paid to purchase land
- Land is an asset and is increased by $4,400,000 due to purchase of land. Therefore, Land account is debited with $4,400,000.
- Cash is an asset and is decreased by $1,100,000 due to the amount paid on purchase of land. Therefore, Cash account is credited with $1,100,000.
- Notes Payable is a liability and is increased by $3,300,000 due to the purchase of land. Therefore, Notes payable account is credited with $3,300,000.
May 1: Record Depreciation expense for the equipment sold.
- Depreciation expense is an expense, and it decreases the
stockholder’s equity by $93,333. Therefore, Depreciation expense – Equipment is debited with $93,333. - Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $93,333 that decreases the value of assets by $93,333. Therefore, the Accumulated depreciation-Equipment account is credited with $93,333.
May 1: Sale of equipment
- Cash is an asset and increased by $300,000 due to sale of equipment. Therefore, Cash account is debited with $300,000.
- Accumulated depreciation-Equipment is a contra asset with a normal credit balance. Its decreased value increases the value of the asset by $2,333,333. Therefore, Accumulated depreciation-Equipment account is debited with $2,333,333.
- Loss on disposal of Plant assets decreases the revenue and thus the stockholders’ equity is decreased by $166,667. Therefore, the Loss on disposal of plant assets account is debited with $166,667.
- Equipment is an asset and decreased due to sale of equipment by $2,800,000. Therefore, Equipment account is credited with $2,800,000.
June 1: Cash and Notes Received on sale of land.
- Cash is an asset and is increased by $900,000 due to the amount received on sale of land. Therefore, Cash account is debited with $900,000.
- Notes Receivable is an asset and is increased by $2,700,000 due to the sale of land. Therefore, Notes receivable account is debited with $2,700,000.
- Land is an asset and is decreased by $1,400,000 due to purchase of land. Therefore, Land account is debited with $1,400,000.
- Gain on disposal of Plant assets increases the revenue and thus the stockholders’ equity is increased by $2,200,000. Therefore, the Gain on disposal of plant assets account is credited with $2,200,000.
July 1: Purchased equipment for cash
- Equipment is an asset and increased due to purchase of equipment by $2,200,000. Therefore, Equipment account is debited with $2,200,000.
- Cash is an asset and is decreased by $2,200,000 due to the amount paid on purchase of equipment. Therefore, Cash account is credited with $2,200,000.
December 31:Record depreciation for the retirement of equipment
- Depreciation expense is an expense, and it decreases the stockholder’s equity by $100,000. Therefore, Depreciation expense – Equipment is debited with $100,000.
- Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $100,000 that decreases the value of assets by $100,000. Therefore, the Accumulated depreciation-Equipment account is credited with $100,000.
December 31: Record the retirement of equipment
- Accumulated depreciation is a contra asset with a normal credit balance. It is decreased by $1,000,000 that increases the value of assets by $1,000,000. Therefore, the Accumulated depreciation-Equipment account is debited with $1,000,000.
- Equipment is an asset and decreased due to disposal of equipment by $1,000,000. Therefore, Equipment account is credited with $1,000,000.
(b)
To record: the
(b)
Explanation of Solution
Record the adjusting entries required at December 31, 2017.
Date | Account Titles and Description | Post Ref. | Debit ($) | Credit ($) | |
2017 | |||||
December | 31 | Depreciation Expense (7) | 2,435,000 | ||
Accumulated Depreciation-Building | 2,435,000 | ||||
(To record the depreciation for the building ) | |||||
December | 31 | Depreciation Expense (8) | 14,730,000 | ||
Accumulated Depreciation-Equipment | 14,730,000 | ||||
(To record the depreciation for the equipment ) | 93,333 | ||||
December | 31 | Interest Expense (11) | 148,500 | ||
Interest Payable | 148,500 | ||||
(To record the interest paid on notes payable) | |||||
December | 31 | Interest Receivable | 78,750 | ||
Interest Revenue (12) | 78,750 | ||||
(To record interest received on notes receivable) |
Table (2)
Working notes:
Calculate the current year depreciation for building as on December 31, 2017.
Cost of the Building =$97,400,000
Useful life= 40 years
Calculate the total depreciation expense for equipment for 2017.
Calculate the remaining cost of the equipment as on December 31, 2017.
Particulars | Amount ($) |
Cost of the equipment as on January 1, 2017 | 150,000,000 |
Less: Sale of equipment on May 1, 2017 | (2,800,000) |
Retired equipment on December 31, 2017 | (1,000,000) |
Remaining cost of the equipment | 146,200,000 |
Table (4)
Calculate the depreciation expense for the remaining cost of the equipment.
Remaining Cost of the equipment =$146,200,000(Refer Table 4)
Useful life= 10 years
Number of months used in 2017 = 12 months (January 1, 2017-December 31, 2017)
Calculate the depreciation expense for the cost of the new equipment.
Cost of the new equipment purchased on July 1, 2017 =$2,200,000
Useful life= 10 years
Number of months used in 2017 = 6 months (July 1, 2017-December 31, 2017)
Calculate the interest expense on notes payable.
Cost of Notes Payable= $3,300,000
Interest Rate =6%
Number of months =9 months (April 1, 2017-December 31, 2017)
Calculate the interest revenue on notes receivable.
Cost of Notes Receivable= $2,700,000
Interest Rate =5%
Number of months =7 months (June 1, 2017-December 31, 2017)
Description:
December 31:Record depreciation for the building
- Depreciation expense is an expense, and it decreases the stockholder’s equity by $2,435,000. Therefore, Depreciation expense is debited with $2,435,000.
- Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $2,435,000 that decreases the value of assets by $100,000. Therefore, the Accumulated depreciation-Building account is credited with $2,435,000.
December 31:Record depreciation for the equipment
- Depreciation expense is an expense, and it decreases the stockholder’s equity by $14,730,000. Therefore, Depreciation expense is debited with $$14,730,000.
- Accumulated depreciation is a contra asset with a normal credit balance. It is increased by $14,730,000 that decreases the value of assets by $100,000. Therefore, the Accumulated depreciation-Equipment account is credited with $14,730,000.
December 31:Record interest expense to be paid on notes payable
- Interest expense is an expense, and it decreases the stockholder’s equity by $148,500. Therefore, Interest expense is debited with $148,500.
- Interest Payable is a liability, and it increases the liabilities by $148,500. Therefore, Interest Payable is credited with $148,500.
December 31:Record interest revenue to be received on notes receivable.
- Interest receivable is an asset, and it increases assets by $78,750. Therefore, Interest receivable is debited with $78,750.
- Interest revenue is a revenue, and it increases the stockholders’ equity by $78,750. Therefore, Interest Revenue is credited with $78,750.
(c)
To Prepare: the property, plant, and equipment section of the company’s statement of financial position at December 31, 2017.
(c)
Explanation of Solution
Preparethe property, plant, and equipment section of the company’s statement of financial position at December 31, 2017.
Company Y | ||
Statement of Financial Position (Partial) | ||
December 31, 2017 | ||
Particulars | Amount ($) | Amount ($) |
Property, Plant, and Equipment | ||
Land | 23,000,000 | |
Buildings | 97,400,000 | |
Less: Accumulated Depreciation | 64,635,000 | 32,765,000 |
Equipment | 148,400,000 | |
Less: Accumulated Depreciation | 65,590,000 | 82,810,000 |
Total Property, Plant, and Equipment | 138,575,000 |
Table (6)
Working notes:
Post the above journal entries in part (a) and adjusting entries in part (b) into the T-accounts to determine the balances of the property, plant, and equipment accounts.
Land is an asset with a normal debit balance.
Land Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
January 1, 2017 | Beginning Balance | 20,000,000 | June 1, 2017 | Cash | 1,400,000 | |
April 1, 2017 | Cash | 4,400,000 | December 31,2018 | Closing balance | 23,000,000 | |
December 31,2017 | Total | 24,400,000 | December 31,2018 | Total | 5,200,000 | |
January 1, 2018 | Beginning Balance | 23,000,000 |
Table (7)
Building is an asset with a normal debit balance.
Building Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
January 1, 2017 | Beginning Balance | 97,400,000 | December 31,2017 | Closing balance | 97,400,000 | |
December 31,2017 | Total | 97,400,000 | December 31,2017 | Total | 97,400,000 | |
January 1, 2018 | Beginning Balance | 97,400,000 |
Table (8)
Equipment is an asset with a normal debit balance.
Equipment Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
January 1, 2017 | Beginning Balance | 150,000,000 | May 1, 2017 | Cash | 300,000 | |
July 1, 2017 | Cash | 2,200,000 | May 1, 2017 | Accumulated Depreciation | 2,333,333 | |
May 1, 2017 | Loss on Disposal | 166,667 | ||||
December 31, 2017 | Accumulated Depreciation | 1,000,000 | ||||
December 31,2017 | Closing balance | 148,400,000 | ||||
December 31,2017 | Total | 152,200,000 | December 31,2017 | Total | 152,200,000 | |
January 1, 2018 | Beginning Balance | 148,400,000 |
Table (8)
Accumulated Depreciation-Buildings is a contra asset account with a normal credit balance.
Accumulated Depreciation-Buildings Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
December 31,2017 | Closing Balance | 64,635,000 | January 1, 2017 | Beginning Balance | 62,200,000 | |
December 31,2017 | Depreciation expense | 2,435,000 | ||||
December 31,2017 | Total | 64,635,000 | December 31,2018 | Total | 64,635,000 |
Table (9)
Accumulated Depreciation-Equipment is a contra asset account with a normal credit balance.
Accumulated Depreciation-Equipment Account | ||||||
Date | Details |
Debit ($) | Date | Details |
Credit ($) | |
May 1, 2017 | Equipment | 2,333,333 | January 1, 2017 | Beginning Balance | 54,000,000 | |
December 31, 2017 | Equipment | 1,000,000 | May 1, 2017 | Depreciation expense | 93,333 | |
December 31, 2017 | Closing Balance | 65,590,000 | December 31, 2017 | Depreciation expense | 100,000 | |
December 31, 2017 | Depreciation expense | 14,730,000 | ||||
December 31,2017 | Total | 68,923,333 | December 31,2017 | Total | 68,923,333 |
Table (10)
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